Despite the impacts of COVID-19, Australia remains in the midst of a lightning-fast transformation to a green energy future.
But the increased risks of delay and cost blowouts associated with project development during a global crisis of this magnitude are significant, and the renewable energy sector is not immune to the effects of constantly changing domestic and international government regulation and policy.
Throughout the COVID-19 pandemic in Australia, major restrictions have been imposed on the movement of people, coupled with widespread border and business closures. These measures will continue to have a material adverse impact on the critical supply chains necessary to develop projects, as will regulations that limit the number of people permitted to work on a construction site.
A number of renewable energy and storage projects will undoubtedly have been suspended as a result of government measures introduced to tackle the pandemic. We are also yet to see the real impact of what is likely to be vast numbers of domestic and international insolvencies at all levels of the supply chain caused by this global crisis.
But despite this, Australia is still in the midst of a lightning-fast transformation to a green energy future. Governments around the country have been exploring opportunities to fast-track projects and other initiatives that will stimulate the economy, save and create jobs and potentially solve the various challenges that stand in the way of the transformation.
The barriers to a successful transformation to a green energy future have been well documented. They include:
- the absence of Federal policy certainty;
- significant constraints (and disincentives to investment) that arise from an obsolete grid which was never designed to accommodate intermittent generation assets;
- battery storage systems or distributed energy systems; and
- energy regulations, which are inconsistent across States and Territories and have not kept up with pace of change in generation technologies.
One recent example of government policy stimulating renewable energy development is the Queensland Government’s commitment to creating three new renewable energy zones and investing $145 million of the State’s money in these new zones. This announcement follows closely behind Queensland’s creation of a $500 million Renewable Energy Fund, focused on investing in a range of renewable energy projects including generation and storage. The fund is a part of $4 billion in loans designed to help stimulate the Queensland economy.
New South Wales has also committed to establishing three renewable energy zones, designed to play a role in delivering affordable generation and helping the State prepare for the expected retirement of thermal generation plants at the same time. The Victorian Government has recently announced the commencement of a market sounding to bring new renewable energy projects online as part of what will be its second reverse auction program. The program is being designed to help drive Victoria’s economic recovery from COVID-19.
The recent announcement that the Commonwealth may support the construction of a new gas fired power station to provide dispatchable power certainty creates a range of uncertain dynamics in the industry, including the extent to which the Commonwealth Government intends to (further) intervene in the National Energy Market (NEM) and the impact that might have on private investment and competition.
While the aforementioned initiatives will undoubtedly increase private sector investment in renewable energy generation assets and storage solutions, and embed renewables as part of the energy mix across the country, the level of such investment cannot be predicted with any certainty. There also remains a significant lead time between the announcement of these initiatives and any soil being turned on a project, meaning the stimulus effects will be some time away.
Further, the lack of coordination between the Commonwealth, States and Territories and the absence of a firm commitment to investing in an urgent and extensive upgrade of transmission networks also means that one of the largest and most significant barriers to the transformation to a green energy future is not being addressed. It is hoped, however, that the replacement of the Council of Australian Governments (COAG) with a national cabinet will engender more consistent and certain policy development across Australia.
The renewable energy sector is not missing the skills, resources or liquidity necessary for the private sector to develop renewable generation assets and storage projects. What is lacking, however, is regulatory reform and the transmission infrastructure and government policy certainty necessary to underpin it.
Amidst the many government stimulus initiatives in light of COVID-19, we would do well to focus on avoiding or at least mitigating a repeat of project delays, cost overruns and project failures arising from the inability to achieved grid connections, the imposition of higher than anticipated marginal loss factors and curtailments that have had a crippling impact on project economics.
This article is part of our publication Continuity Through Crises: Perspectives on business risk, resilience and recovery in uncertain times. Read more here.
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